Nicholas Pell
Mar 24, 2012

Facebook's 'white hat' counter-trolling of Yahoo: 750 IBM patents create a minefield

Illustration of the thumb up 'like' symbol, composed of social media theme wordsFacebook recently fired a salvo in its defense against Yahoo by purchasing 750 patents from IBM. To backtrack a bit for those who have not been following the latest patent war, Yahoo recently sued Facebook. It’s not hard to see why they did it. Yahoo’s lost nearly five billion dollars for 2011. Compare to Facebook’s $3.71 billion profits for the same time period. The days when Yahoo was one of the hottest buzzwords on the Internet seem far, far away. The days when Facebook becomes yesterday’s news is nearly impossible to imagine. 

However, Zuckerburg and company do have a problem that Yahoo and their other competitors do not: Facebook, prior to Friday, owned a mere 56 patents, with 500 applications pending. This means that Facebook just purchased over a dozen times as many patents as it currently owns. In the age of IP wars, not having a strong portfolio of patents is poison for a social media firm. There are no nice guys in business, something that Facebook is about to learn.

Purchasing patents from IBM is a rather shrewd move, however. Now that Facebook is the proud owner of a number of old IBM patents, they can defend themselves against an IP lawsuit by saying that they own similar patents that are older than the ones Yahoo claims they infringed upon. It’s unlikely that Facebook is going to countersue right off the bat. However, they’ve radically altered the playing field of the dispute, giving themselves a much stronger negotiating position for settlement, or even getting the suit dismissed. They have now created a vast and unpredictable minefield over which Yahoo must step if they wish to lay siege to the Facebook fortress.

Facebook's move puts up a warning sign about an upcoming minefieldAnother tactic that Facebook could take is working with a defensive patent aggregator, like RPX, who they are possibly already working with. Defensive patent aggregators work by purchasing patents and patent rights to keep them out of the field of a competitive company. For a company like Facebook, which is comparatively patent poor compared to other, older companies like Yahoo, patent aggregators are a godsend. They allow them to catch up quickly with older companies without having to do heavy research and development lifting. Defending against a patent infringement lawsuit often costs $1 million before trial and $4 million or more during the course of a trial and even then there’s no guarantee of success. Patent aggregators offer a far cheaper solution than litigation. Wage a full-fledged and costly war, or just  hire a cadre of elite assassins to conceal themselves behind the enemy's curtains.

The strategy Facebook is using to defend itself against Yahoo is ingenious, but it is hardly unique. Like a modern general taking a page out of Sun Tzu's writing, sometimes the art of war need not be reinvented. Previously, Qualcomm sued Broadcom for patent infringement. Broadcom countered by acquiring a portfolio of patents, turning the tables on Qualcomm and netting a settlement of $891 million. Qualcomm had been spending approximately $100 million per year to defend itself against Broadcom. In such cases, the firm being sued -- legitimately or not -- can use a form of legal jiu-jitsu to become the aggressor and gain a handsome purse for their troubles.

Yet another track that Facebook could take is to allege that Yahoo is engaged in antitrust violations and restraint of trade. Antitrust lawsuits have become rather costly in American courts, making such lawsuits incredibly dangerous for an unsuccessful defendant. If Facebook smells blood in the water and really wants to make a point, they can use this strategy to make a point: Hands off. It would send a strong message that Facebook is not a company to be trifled with when it comes to patent litigation. They would tell competitors that they not only know how to defend themselves, but know how to do so quite aggressively, hitting their competitors hard and where it hurts.

Mark Zuckeberg may very well have the last laugh against Yahoo The patent wars are one of the more interesting areas of IP in the 21st Century. Larger tech firms have realized that IP isn’t just a means to protect their own investments. It’s also a way to bog down competitors in terms of time, but perhaps more importantly, money. Facebook, however, is joining companies radically altering the face of the IP wars. The fact that some of the patent infringement alleged against Facebook seems highly frivolous -- does anyone seriously believe that Yahoo can have a patent on forms of instant messaging or social media groups? -- is interesting, but not the real story. Just as some firms realized that patent trolling is a way to profit and position over competitors, Facebook and Broadcom have unveiled a new layer of patent trolling. Call it “white hat” patent trolling or patent counter-trolling if you like. Regardless of a name or label, Facebook and Broadcom are showing the defendants of patent trolling cases how to hit back and hit back hard.